Getting out of the rut

Getting out of the rut

The good news is that most stakeholders are realistically optimistic that India cannot remain a at sub five per cent growth rates for long. While 2013 was a forgettable year for most of the verticals, a year of stasis in the economy, a year of inaction on the policy front and volatility in forex rates, the industry is very hopeful that after the elections, the new government displace the inertia with business-friendly policy initiatives. The industry and investor sentiment is becoming positive with indices hovering around all-time high, the rupee stabilising steadily, clearance of some big- ticket projects by the Cabinet Committee on Investment, hopes of a favourable monsoon. The start of the harvesting season is expected to ease inflation which in turn, may soften borrowing costs. Then, the expectation of a stable government coming to power is also contributing to the positive sentiments, especially the hope of good tidings in the second half of 2014.

Nose-diving demand and the resultant low-capacity utilisation have already put enormous pressure on the cement manufacturers. Reduced level of capex spending on new projects is due to regulatory hurdles and inordinate delays in clearances; higher cost of borrowing is another major bottleneck to new investments in the cement sector. To this end, issues of regulatory hurdles in land acquisition, mining leases and environmental approvals need to be addressed, on a priority basis.

For the sustainable growth of any industry, there are three indispensable pillars that support the super- structure: adequate demand, easy availability of input materials and efficient and cost- effective modes of transport. However, given the acute supply constraints of input materials and logistics support to the cement industry, which keeps on aggravating every year, experts feel that unless and until government policies create a climate which results in a committed increase of demand, and measures to ensure requisite supply of input materials and logistics support, the industry cannot grow to its full potential. Taxation is too highly skewed for cement and the industry would like to see a rationalised tax structure.

Even if 2014 may throw challenges at us, challenges like a non-conducive policy environment, indirect tax regime, widespread industry fragmentation, high credit costs and lack of an adequate and robust infrastructure, overall there are good vibes gathering, and the long-term outlook is quite positive. The cement industry being a core sector, the medium and long-term view should be taken in view, and that view certainly looks promising. Demand will certainly bounce back on track and excess capacity will bottom out in the next couple of years.

A Happy and Prosperous New Year!
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